More Income Means More Toys

What would you spend your money on if you suddenly had extra discretionary income at your disposal? According to a new Gallup economic measure, the answer is probably toys -- or at least the adult equivalent of toys in the form of entertainment and recreation.

In a Feb. 21-24 survey*, Gallup asked Americans to estimate how much money their households will spend in the current month on each of four types of expenditures. Of these, groceries account for the most spending, followed by clothes purchases, then recreation and entertainment, and then dining out.

This ranking holds for upper- and lower-income households alike. However, upper-income Americans -- those earning above the roughly $40,000 U.S. median household income level -- spend proportionally more on recreation and entertainment than on any of the other three types of purchases.

Overall, the median dollar amount Americans say they will spend this month (February) for each type of expenditure is $300 for groceries, $100 for clothing, $100 for recreation and entertainment, and $75 for eating dinner out at restaurants. Mean spending values -- the numeric average of all responses in each category -- are substantially higher because of some big spenders at the upper margin. Gallup finds that Americans will spend an average of $361 per household this month on groceries, $222 will be spent on clothing, $176 on entertainment and recreation, and $116 on dining out.

Discretionary Dollars Steered Toward Clothing and Entertainment

It is obvious that the higher one's income, the more money one has to spend. The sum of all four expenditures for households earning $40,000 or more (about half of all U.S. households) is about twice what those earning under $40,000 will spend: $1,158 vs. $554. 

However, the data reveal that those in higher-income households plan to spend proportionally more money on some items than on others. Americans in upper-income households say they will spend less than double what those in lower-income households will spend on groceries ($433 vs. $277 -- or about 56% more). They will also spend about double (109% more) dining out. And they will spend much more than double on clothing (158% more) and on recreation/entertainment (213% more).

A Possible Forecasting Tool

Just how accurately can Americans predict their monthly spending in these categories? That's an important question in helping determine how well monthly changes in spending estimates might correspond with actual retail spending patterns. To get a gauge on accuracy, the survey included questions that asked respondents to indicate how accurate they felt their estimates were -- "reasonably accurate" or "mainly a guess." 

The responses vary, with respondents indicating that their estimate of dining out is the most accurate, followed by groceries and then entertainment/recreation. About half believe their estimate of clothing spending is accurate.

Is that estimate for what you will actually spend -- [ROTATED: reasonably accurate (or is it) mainly a guess]?

Men and women have roughly equal confidence in the accuracy of their estimates in each category.

Bottom Line

Consumer confidence data typically include questions tracking public perceptions of the national or local economy plus questions measuring Americans' confidence in their personal finances. However valuable these measures may be as indicators of overall economic mood, recent research has questioned the utility of these measures in predicting future economic activity. Gallup has an annual measure of Americans' Christmas holiday spending that has proven to be a remarkably reliable indicator of whether the retail holiday season is going to be a boom or a bust. The question, typically asked in mid-November, simply asks respondents to estimate how much money they will spend on Christmas presents that year.

Along the same lines, it is possible that the best way to know how much consumers will spend each month is to simply ask them. The four questions included in the mid-February survey ask about four expenditure categories that account for the bulk of Americans' discretionary spending -- what they buy after their housing costs and other bills are paid. Time will tell, but questions that tap whether Americans feel flush enough to spring for filet mignon at the grocery store or are willing pay for an extra night out at the movies could provide important information to supplement the prevailing measures of consumer confidence.

*Results are based on telephone interviews with 1,003 national adults, aged 18 and older, conducted Feb. 21-24, 2005. For results based on the total sample of national adults, one can say with 95% confidence that the margin of sampling error is ±3 percentage points.

For results based on the 519 national adults in the Form A half-sample and 484 national adults in the Form B half-sample, the maximum margins of sampling error are ±5 percentage points.

For results based on the sample of 626 adults employed full or part time or unemployed adults looking for work, the maximum margin of sampling error is ±4 percentage points.

In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error or bias into the findings of public opinion polls.